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Nortel’s Debacle What lies ahead for Canada and its biggest technology company ? By K.C. Grainger New York City - Nov 2 - The Canadian press reacted quickly to the second brutal drop in the price of Nortel Networks (NYSE:NT $44), which is today considered the vanguard of Canada’s high tech industry. Newspaper headlines proclaimed "The Nortel Bombshell" and "Nortel’s plunge sends a dark economic message." One would think that it was a national calamity at hand. Not really. In the Canadian Standard & Poor’s 60, a commonly cited benchmark for the overall stock market, Nortel represents approximately 26% of the value of the index, almost four times what it represents to the Canadian economy. Thus, the price movements of Nortel influences the market to a far greater degree than it really should. In my opinion, a downward adjustment of Nortel’s value to the index would benefit investors by presenting a more accurate picture of the Canadian stock market. My analysis suggested that Nortel was due to have a very severe price correction simply because it was way overvalued. The shared did indeed fall, then rally only to have yet another brutal correction. Is the economy of Canada weakening ? Is a recession in the horizon ? No, to both questions. Not yet anyway. By any method of valuing a stock, Nortel was and still is quite overvalued. While I do expect rallies from the recent price lows, Nortel’s stock will again tumble if it moves up too high. Many fund managers have already returned to buy Nortel stock so they can average into the stock, hopefully lowering their average price of the Nortel shares that they already owned. Basically, what you have is a stock that will be supported by the funds that own it. That usually works, for a while. The fact that a company such as Lucent, which is very similar to Nortel, had such a brutal correction was a strong warning to Nortel shareholders. Yet few paid attention. And investors suffered greatly. Henry Ford, the great American industrialist once stated that "thinking is a very difficult activity, that is why very few people engage in it." I dare say that Mr. Ford’s premise could describe most, but not all of the analysts following Nortel. Why did so few of them miss the correction ? Because they did not do the required analysis (and thinking) that is so necessary for an investment success. It is essential that an analyst, stock trader, investor do in-depth research. If you don’t, the market can absolutely kill you. Just ask the Nortel shareholders who bought it at its recent price high. Most will tell you that an analyst from a big name brokerage house recommended it at the time. They never learn do they ? |
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| aus der Diskussion: | Nortel |
| Autor (Datum des Eintrages): | Riddick (04.11.00 18:04:42) |
| Beitrag: | 75 von 200 (ID:2263774) |
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